Trade Forex Trading

How Do I Calculate Leverage in 1:25 and 1:100 - Leverage in Forex 1 25 and 1 100

How Leverage Increases Profits & Loses?

If you are a trader with a $1,000 account and 100:1 leverage, you can buy a maximum of 1 contract/lot, which is equal to a $100,000 contract (1 standard lot).

With a $1,000 account and 25:1 leverage, you can buy up to 0.25 lots, which means you're trading a $25,000 contract.

We will figure out profits and losses with two leverage examples. Start with a $1,000 account.

Please note: This figure reflects the leverage currently being utilized, not the Maximum leverage available. If an online broker offers 100:1, but you transact with only 0.25 contracts, the leverage actually employed is 25:1, which is distinct from the Maximum leverage (100:1).

So the illustration referred in this guide below is talking of the leverage used based on the volume of the trade transaction which you've opened.

Example 1: (25:1 Leverage or 0.25 Lots)

For 1 lot 1 pip equals $10 dollars

If you earn a profit of 100 pips, the calculation of the profit in terms of dollars is:

0.25 lots

1 pip = $2.5 dollars

100 pips = 100 * 2.5 = $250

Total = balance + profit

= 1000+ 250

= $1,250 you've just made 25% profit your account balance

If you accrue a loss of 20 pips the loss amount in dollars is

0.25 lots

1 pip = $2.5 dollars

20 pips = 20 * 2.5 = $50

Total = account balance - loss

Total= 1000 - 50

Total = $ 950 you've just lost 5% of your trading account balance

Example 2: ( 100:1 Leverage )

For 1 lot 1 pip equals $10 dollars

If you earn a profit of 100 pips, the calculation of the profit in terms of dollars is:

1 lot

1 pip = $10 dollars

100 pips = 100 * 10 = $1000

Total = balance + profit

= 1000+ 1000

= $2,000 you've just doubled your trading account balance

If you accrue a loss of 20 pips the loss amount in dollars is

1 lot

1 pip = $10

20 pips = 20 * 10 = $200 dollars

Total= trading account balance - loss

Total= 1000 - 200

Total = $ 800 you've just lost 20 % of your account balance

From the above example you can see the more leverage you use the greater the profits or losses and less you use the lesser the profits & losses.

As a trader, pick low debt ratios to cut risks. High ratios raise dangers. Pros stress this rule: stick under 5:1 debt when trading.

Within the guidelines for trading leverage: It is recommended to maintain leverage below 10:1, which is still considered high. Many seasoned/professional money managers often adhere to a 2:1 ratio, meaning they only trade two contracts/lots for every $100,000 held in their account.

To Learn More about Leverage and Margin - Study the Tutorials Listed Below:

Leverage and Margin Described

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